$649 iPhone 5s Costs Apple $199

[ Editor's note: This story has been updated to clarify total cost issues. ]

The new iPhone 5s costs Apple about the same to build as last year's iPhone 5, according to a report from IHS. The company has torn down both the iPhone 5s and 5c, and assessed where the internals came from and what they cost.

The bill of materials for the 16-GB iPhone 5s comes to about $191. The device costs about $8 to manufacture, bringing the total to $199. The 64-GB model costs Apple only $19 more to make, for a total of $218. The full retail price of the 16-GB 5s is $649, while the 64-GB 5s goes for $849.

The 5c costs just a little bit less to make. IHS, which shared the results of its breakdown exclusively with AllThingsD, says the components and manufacturing cost for the 16-GB 5c add up $173, while the 32-GB 5c costs $183. The iPhone 5c sells for $549 and $649, respectively, for the 16- and 32-GB models.

It's important to remember that the cost to manufacture the iPhone doesn't include other, often significant costs, such as research, marketing, and so on. IHS' analysis only pertains to the individual components and their assembly. Apple doesn't disclose those costs, so they can only be estimated.

As is typical, the display costs the most on both the 5s and 5c, which are using the exact same panel. IHS estimates the cost of the LCD screen to be $41. A range of companies are making the display, including Japan Display, LG Display and Sharp.

Both devices use the same combined RF chip, as well, which costs a hefty $32. According to IHS, Apple is using a fairly advanced RF chip that handles up to 13 different LTE bands. "Unlike other phone designers, Apple has spent a lot of time collaborating with the RF chip companies to find novel solutions that its competitors don't have," said IHS analyst Andrew Rassweiler. Apple generally tries to manufacture as few SKUs as possible. Combining so many LTE bands onto a single radio chip really helps cut down the number of unique devices Apple has to make. The RF modules come from Avago, Qualcomm, RF Micro Devices, Skyworks and TriQuint Semiconductor.

The major differences between the 5s and 5c boil down to a few components. The 5s includes the Apple A7 processor, which is made by Samsung. Due to the 64-bit computing power of the processor, Apple chose a different type of RAM for the 5s. The A7 processor costs $19. The 5c uses Apple's A6 processor. It is also made by Samsung and costs about $13. Both were designed by Apple.

Wondering about the fingerprint sensor in the iPhone 5s? That only adds $7 to the phone's cost. The 5c doesn't have a fingerprint scanner. IHS didn't provide a detailed breakdown on the differences in cost between the aluminum 5s and the polycarbonate 5c shells.

By way of comparison, the Samsung Galaxy S4 smartphone costs $237 to build. The GS4's priciest component is the 5-inch full HD touch display, which costs a hefty $75 -- almost twice what the iPhone's screen costs. Further, the GS4's processor, which Samsung built for itself, costs $28. Samsung spent more than $100 on just two components for the GS4. The same two components cost Apple $60 for the iPhone 5s.

There were actually a bunch of articles last month that said Apple was modestly increasing R&D spending. They're supposed to have a ton of people working on a smartwatch, which could explain some of the upsurge.

Anyway, looking at Apple's R&D spending as a percentage of their profits doesn't tell the whole story.

Apple's profits have exploded over the last decade. Insane, insane growth. This is naturally going to drive down the percent of R&D:profit ratio.

Suppose, for example, that one year, Apple made $5 and spent $1 on R&D. The next year, suppose that Apple made $50 but spent $2 on R&D. In this scenario, R&D actually increased by 100%, year over year, but as a share of profit, it dropped from 20% to 4%.

This is an exaggerated example, of course. And I also have been a little disappointed when I see that Apple's marketing budget has increased so much faster than its R&D budget. But the ratio of R&D to profits can drop even if R&D and profits are both increasing; it just means that R&D isn't growing as fast as profit.

In other words, I don't see anything that implies "Apple does not spend that much for R&D." In real dollars, Apple seems to spend more on R&D than ever. It's only the percentage that has dropped, and though it would reassure some Apple fans to see them invest more in research, this sort of drop isn't the same thing as actually spending less.

All - The original article contained two sentences regarding the difference between manufacturing cost and the final sale price. The comments were meant to be flippant and outlandish on purpose. I thought it was clear I was being snarky. Turns out some readers thought they were being misled on the facts. This article is about the cost to manufacture the devices only, which include the raw component cost when the parts are purchased at volume and the cost of piecing those components together. That's where IHS got its $199/$173 figures.

I did not intend to imply that the $199 price estimated by IHS represented the entire cost of developing, engineering, manufacturing, shipping, or transporting the iPhone. Obviously those factors are significant and boost the final cost to Apple by a wide margin.

With respect to the headline, the one I submitted with the article included the words "To Make" at the end. The headline was shortened for the sake of brevity and not to mislead readers or bait them into clicking on the article.

The same people willing to pay the "Apple premium" are the ones falling for the "iOS 7 waterproofs your phone" hoax. Unbelievable how many lemmings are out there. If people realized they shouldn't line up on day one to get a new model and waited Apple out for a couple weeks or months, or even try a different brand for a change, Apple would start charging them a lot less for the product and the "Apple premium" would evaporate, making smart phones a lot cheaper for everybody. Apple is turning into the Microsoft of 5-10 years ago - fat and happy and clueless about how to compete. Blackberry should be a lesson to them, and they should go read "The Innovator's Dilemma". If the lemmings ever figure things out, they're in trouble.

I do agree about the bubblegum design, it is something many people have commented on and I'm surprised Apple is catering to this market. Maybe that opens them up to new (paid) features that makes it more masculine, just like your suggestion of different phone sizes. At this point they can't lose money if they try.

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